Mortgages for company directors

Reconcile tax efficiency with getting a mortgage

Limited company directors often aim to keep their profit and personal income down to pay less tax. But if you would like to get a mortgage, you have to show a healthy profit, salary and dividend figures. As you can’t have both (tax efficiency and high income), it is a case of having your cake or eating it.

And no, increasing your salary and dividends for 3 months prior to a mortgage application won’t help. A mortgage for a limited company director is assessed based on closed business year accounts, not based on current business year takings.

However, lending criteria for income assessment are different from one lender to another. It’s a complex field and to calculate the maximum mortgage amount you can borrow, we use the individual criteria for each lender.

Mortgages for company directorsLimited company buy to let mortgage

Getting a mortgage as a company director

As a limited company director, you are in a good position to get a mortgage. You have control over the accounts. If you know that you will need a mortgage, we can work with you to establish how much cake you have to keep and how much you can eat.

Several lenders recognise that even if you don’t take out all your profit as dividends, it is still your money and you could potentially take it out later.

This means that if you want to keep your salary and dividends low for tax purposes, we could use the profit and your salary to get the mortgage.

If you had a good year last year compared to the previous ones, there are lenders who average only 2 years or even work based on only the latest year’s figures. We can find the appropriate lenders who offer mortgages for company directors based on your limited company accounts and your individual requirements.

Proof of income for company director mortgages

The amount of paperwork you receive from the accountant can be confusing. You may have abbreviated accounts, trial balance sheet, unaudited financial statements, corporation tax computation, company tax return, personal tax return and personal tax computation among others.

So, what does a lender need for a mortgage application?

As a generic answer, lenders normally ask for the full, finalised and signed accounts (unaudited financial statements), which historically showed all the necessary figures.

However, following recent changes in the accounting requirements, the new format does not show dividend figures. Therefore, it is likely that a letter from the accountant will be required in addition to the accounts.

Some lenders will ask you for other documents as well. In contrast, others wont’t bother you at all, as they just send a form to the accountant to complete. Whatever the case, we are here to help you, so don’t despair, help is at hand! We are also happy to liaise with your accountant directly if that’s your preference, when it comes to gathering the necessary paperwork.

Mortgage for a limited company

This is where things get even more complicated and you will need tax advice as well as mortgage advice. Make sure that you get both before making a purchase.

If you have money left in your business, you may wish to invest it in property. But there are 3 distinct scenarios to consider:

Buying a property for your business

For example, an office or a building with a shop on the ground floor and a residential flat above that you can rent out. This normally requires a commercial mortgage.

Buying a property through a new limited company

If you set up a limited company specifically to deal with buying, letting, selling residential properties, then this company is a Special Purpose Vehicle (SPV).

Buying a property through an existing limited company

If your current company wasn’t set up for the property rental business, then it is referred to as a trading company (instead of an SPV).

We can help you with buying a buy to let property through a limited company, regardless whether it is an SPV or a trading company.

Additionally, we have partnered with a few specialist brokers for commercial mortgages. In case you are planning to buy a commercial unit or a property that requires a commercial mortgage, we are happy to assess your options first and then make the introduction as appropriate.

Special Purpose Vehicle (SPV)

Let’s start with the good news.

You generally need a minimum 1-year trading history and your income will influence how much you can borrow when getting a mortgage as a limited company director for your own home. None of this applies when buying an investment property through a limited company, if this company is an SPV.

Lenders accept SPVs even if they have just been setup, so there is no trading or accounting history. Normally, up to 4 directors are accepted and not everyone will have to be an experienced landlord or even a home owner.

However, here comes why you need tax and mortgage advice.

Most lenders will insist on the directors signing a personal guarantee and may also take fixed and floating charges and potentially a debenture over the company’s assets. You would also have to consider stamp duty and capital gains tax implications as well as accounting and taxation rules for the company.

From a buy to let mortgage point of view, not every lender accepts trading companies, but will insist on an SPV and may even stipulate which SIC codes they accept. SIC is short for standard industrial classification of economic activities, which is used by Companies House to describe your company’s nature of business. Dependent on the SIC code you choose and other mortgage lending criteria, we can select suitable lenders for you.

Company director mortgage calculation

When you find a limited company director mortgage calculator online, what income figure do you put in? Latest year salary and dividends? Or the average of the last 3 years? Or your profit and salary figures for the last 2 years? It is confusing, isn’t it? Well, the answer is – it depends.

Every lender is different in their assessment method. Unless you use a lender’s own mortgage calculator based on their specific lending criteria, you can only get indicative results from a mortgage calculator.

As an independent mortgage broker, we have access to the lenders’ own calculators and criteria, so we do the calculations individually. This means that we are your personal shopper. We compare the market on your behalf and come up with accurate results. This saves you time. And you can spend more time finding the perfect property.

How to transfer property to a limited company?

Apart from buying a property through a limited company, you could also consider transferring property to a limited company. This may help you reduce your personal tax liability or make it easier to invest your profit in new properties.

Be aware that this transaction is a sale, so the buyer (the limited company) may be liable to paying stamp duty land tax. Your accountant or tax advisor will be able to advise you regarding the stamp duty liability.

On the positive side, many lenders accept the equity in the property as a “gift”. This means that the limited company wouldn’t necessarily have to put down any cash as a deposit for this purchase.

When moving home and renting out your old home, you could also transfer the property to a limited company. Not every lender will allow this move, but we can help you arrange this type of transaction as well.

What next?

Buying a buy to let property through a limited company has its pros and cons compared to buying in your own name.

The former option may be more tax efficient, you can more easily partner with others to buy an investment property and may even find it easier to re-invest the profit in other properties. In other words, it is like running a property business. However, you have to be prepared for higher costs versus a traditional buy to let mortgage.

Although an increasing number of lenders are prepared to offer a mortgage for a limited company, the interest rates and associated fees are normally higher compared to buying in your own name.

Ultimately, the decision lies with you based on your plans and preferences. A tax advisor will help you understand the tax implications, while a mortgage broker will help finance the transaction. We are here to make sure that you get the best mortgage deal possible.

Looking for a company director mortgage calculator?

Our “How much can I borrow?” calculator below has a limited company director section that takes into account your salary and dividends. It is a good starting point to get an idea of your borrowing potential.

See how we can help

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YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED AGAINST IT.

BlueWing Financials is a trading name of Milla Mortgages Ltd., which is authorised and regulated by the Financial Conduct Authority (FCA). Our FCA authorisation number is 750470. The guidance contained within this website is subject to the UK regulatory regime and is therefore primarily aimed at customers based in the UK. The FCA does not regulate most Buy to Let mortgages. The company is incorporated in England & Wales. Company registration number is 08461134. Registered company address is 420a Streatham High Road, London, United Kingdom, SW16 3SN. Copyright Milla Mortgages - All Rights Reserved.